DHFL’s resolution plan may not appeal to lenders

Distressed housing financier DHFL has prepared a resolution plan which lenders are finding difficult to accept. DHFL has sought a valuation of Rs 54 per share for conversion of debt to equity for lenders to get a controlling stake and a repayment timeline that stretches to 20 years for project-linked debentures. This is against the current market price of Rs 42, which gives the company a valuation of Rs 1,325 crore. One of the key revelations from the resolution plan is that the company continues to have debt of Rs 83,873 crore on its books. Of this, Rs 26,324 crore is in the form of bank loans and Rs 41,431 crore in non-convertible debentures (NCDs). The nature of these liabilities makes a resolution difficult as banks, which are governed by RBI norms, can make certain concessions but bond investors (which include international ones who have invested in masala bonds) have different considerations. Another key worry for lenders is the quality of DHFL’s loan books, which serve as the underlying assets for the funding from banks and bondholders.